SYDNEY: National Tyre & Wheel Limited has entered into a conditional agreement to acquire the business assets of TYRES 4U (T4U) in Australia and New Zealand, a news release said. The acquisition is expected to be completed on or about 31 July 2020.

The consideration payable for these assets is estimated to be $48.8 million, consisting of cash consideration of $43.6 million and the issue of 11.432 fully paid shares in the issued capital of NTD to Tyres4U Pty Ltd.

National Tyre & Wheel Limited (NTD) imports and wholesales tyres and wheels in Australia, New Zealand and South Africa. Historically, NTD has mostly focussed on 4WD tyres and wheels. More recently it has expanded its product mix to include car and SUV tyres.

Tyres4U Pty Ltd and Tyres4U (NZ) Limited (together called T4U) carry on the business of importing and wholesaling tyres and wheels in Australia and New Zealand. T4U also carries on a retail business in Australia, comprising 32 company owned and 34 licensed Tyreright stores.

T4U’s wholesaling business is carried on from 12 locations throughout Australia and 3 locations in New Zealand. T4U has been operating since 1990 and employs more than 450 people. NTD has a well-documented strategic objective to diversify and seek scale through acquisitions. Diversification reduces risk and a broad product mix appeals to customers. Scale supports better service levels, more buying power and lower costs.

Acquiring the T4U business is a logical extension of this strategy – it operates in key industry segments in which NTD has little or no presence: truck & bus tyres; industrial tyres (e.g. fork trucks); and agricultural/off the road tyres.

Similarly, T4U is not as strong in the 4WD segment, where NTD is strongest. While both businesses focus on tyre specialty retail customers, there are opportunities to cross sell and expand into other channels. T4U and NTD have no common suppliers.

In addition to this diversification, T4U brings significant scale – with combined FY20 volume of more than 2.5m units and combined FY20 revenue of $450m. The transaction will make the merged NTD/T4U one of the largest tyre wholesalers in Australia and NZ and the largest independent multi branded wholesaler in both countries. Integration of the businesses is relatively seamless – there are nuanced differences between product types and distribution strategies but, fundamentally, operations, customers and types of suppliers are the same.

Synergies are expected with little product overlap and each business presently operating separate distribution centres in major capital cities and some regional centres.  After completion NTD will operate 30 distribution centres in Australia, New Zealand and South Africa.

The business will serve more than 4,000 retailer customers with only two of those representing more than 2% of revenue and none accounting for more than 3% of revenue. None of more than 30 suppliers will represent more than 17% of COGS and only one is more than 8%. After acquisition, NTD will employ more than 500 people in Australia, New Zealand and South Africa.